According to the research report released by CSC Securities, looking at the performance of the real estate management service industry in the 2024 interim report, the property management/commercial management industry has increased revenue but not profit, and performance differentiation has intensified, with the parent company remaining the main influencing factor. Real estate companies related to high-performance physical enterprises have advantages in terms of performance growth rate, profitability, and collection efficiency; key physical enterprises have increased their managed area by 12.0% compared to the same period last year; leading real estate brokerage companies have expanded their stores and teams. The speed of constructing a new development model for real estate has accelerated, and CSC Securities continues to be bullish on the management service track, recommending real estate brokerage companies and high-performance real estate companies related to physical enterprises.

Property management and commercial management: the growth rate of the managed scale has rebounded, and performance differentiation in the industry has intensified, with high-performance real estate companies related to physical enterprises performing better. In the first half of 2024, a total of 22 key property management and commercial management companies achieved operating income of 111.18 billion yuan, a year-on-year increase of 6.2%, a decrease of 3.6 percentage points compared to 2023; net income attributable to the parent company was 6.3 billion yuan, a year-on-year decrease of 37.5%, a decrease of 38.3 percentage points compared to 2023. Performance differentiation has intensified, and the parent company is still the main factor in the industry. Property management companies related to high-performance real estate enterprises (usually with a background of state-owned enterprises) have significant advantages in terms of performance growth rate, profitability, and collection efficiency. The net income of state-owned and state-owned enterprises related to physical enterprises increased by 9.0% year-on-year, while that of private enterprises decreased by 91.5%. The total managed area of 18 key physical enterprises is 5.26 billion square meters, with a year-on-year growth rate of 12%, ending the two-year consecutive decline from 2021 to 2023, an increase of 1.5 percentage points compared to the whole year of 2023.

Trading and other services: real estate brokerage companies show good profit elasticity, construction service providers are under pressure, and asset management companies show differentiated performance.

(1) Real estate brokerage companies: significant improvement in profitability in the second quarter, impressive performance in real estate asset management business. In the first half of 2024, the total revenue of top intermediaries reached 46.78 billion yuan, a year-on-year decrease of 2.5%; the net income attributable to the parent company was 2.37 billion yuan, a significant decrease of 41.3% year-on-year. However, the pattern of the strong getting stronger continues, and in the second quarter, they showed good profit elasticity. Take the leading company Ke Holdings as an example, it achieved a net profit of 1.9 billion yuan in a single quarter, an increase of 46.2% year-on-year, and achieved a adjusted net profit of 2.69 billion yuan, an increase of 13.9% year-on-year. The total revenue of the three real estate brokerage companies' real estate asset management business reached 11.15 billion yuan, a year-on-year increase of 73.1%.

(2) Construction service providers: the market share continues to increase, but the growth of orders and construction fees has slowed down, and the pressure on collection has increased.

(3) Asset management service providers: more resilience in asset operation and management business. The representative company for infrastructure, Shoucheng Holdings, achieved a year-on-year increase of 55.2% in revenue in the first half of 2024, and the asset operation and management business maintained stable growth. The representative company for commercial real estate, Everbright Jiabao, experienced a significant decline in performance due to business transformation, but the scale of asset management remained stable.

Investment recommendation: Bullish on trading intermediaries and high-performing real estate-related companies.

Risk warning:

1. Operation service providers: The slower-than-expected recovery of the real estate market will reduce the growth of contract area delivered by the parent company, and also directly impact value-added services such as on-site management consultation provided by the real estate-related companies. At the same time, intensified competition in the market expansion and rising labor costs will put pressure on the profit margin of property management companies, posing risks of lower-than-expected profitability. In addition, the continuous increase in accounts receivable scale and lower collection rate than expected will have adverse effects on their liquidity. 2. General contracting service providers: Uncertainty risks in the general contracting market and risks of goodwill impairment. The general contracting business is divided into commercial general contracting and government general contracting. The prospects of the market depend on factors such as the performance of the Chinese macro economy, the prosperity of the real estate market, and the policy objectives of public housing construction. The operation of the business involves uncertainty. The brand value of general contracting service providers is their core competitiveness. When the project owner or other contracting parties fail to fulfill their contractual obligations to the general contracting service providers, the resulting impairment of goodwill may have negative impacts on their reputation, business, financial condition, and operating performance.